Rents on the rise but not enough to encourage new buildings

LACONIA — The annual survey prepared by the New Hampshire Housing Finance Authority (NHHFA) pictures a tight residential rental market across much of the state — including Laconia — marked by low vacancy rates and slowly rising rents.

Each year the NHHFA assesses market conditions by questioning property owners and managers who offer units for year-round rent at market rates, culling seasonal and subsidized units from their sample.

Statewide the vacancy rate was 3.4-percent for all rental units and 3.3-percent for two-bedroom units, which is close to the turnover rate of 2 percent representing the usual comings and goings of tenants. The median gross monthly rent, including utilities, was $1,018 for all units and $1,076 for two-bedroom units.

In Laconia, the vacancy rate was 3.6 percent for all units and 5.6 percent for two-bedroom units. The median gross monthly rent was $920 for all units and $953 for two-bedroom units, effectively the highest the survey has reported in the last 23 years.

According to the 2010 census, 2,978 of the 6,838 housing units in Laconia that are occupied year-round, or 44-percent, were homes to 6,399 renters, who represented 40-percent of all residents.

Dan Smith of the NHHFA said that the rental market has been shaped by two recessions, the first in the late 1980s and early 1990s and the second beginning in 2008. In the late 1980s, speculative construction swelled the inventory of new homes, especially condominium units. When the market collapsed for lack of demand, the landscape was littered with unsold units, many of which were purchased by investors and thrown on to the rental market.

Rents plummeted. By 1992, the median gross monthly rent for all units touched $560 statewide and $476 in Laconia while the numbers for two bedroom units were $608 and $498 respectively. By 1996 rents began to recover and have risen steadily ever since, including through the recent recession. In Laconia, between 2003 and 2013, the median gross monthly rent has climbed 57 percent for all units and 52 percent for two-bedroom units.

Unlike the first recession, which left a glut of unsold housing units, Smith said that when the recent recession struck there was no excess supply of housing. He said that the loss of jobs and income forced significant numbers of homeowners into foreclosure, especially those who purchased homes with mortgages beyond their means. Meanwhile, relatively few rental units were constructed after the prior recession because the low but rising rents would not support the costs of development. Consequently, Smith explained, as the number of unemployed and foreclosed rose, the demand for rental housing increased, sustaining the upward pressure on rents.

Smith anticipated little change in the rental market in the near future. He expected demand to remain constant as uncertainty about job prospects and tightening credit standards led many potential home buyers to prefer to rent. Likewise, college graduates burdened with student loan debt and foreclosed homeowners with poor credit scores are virtually driven to rent. If demand for rental units is unlikely to shrink, Smith doubted that with slow population growth and low household formation rates it was any more likely to rise significantly. Without an appreciable rise in demand, he foresaw no significant increase in the stock of rental units and suggested any new construction would be aimed at the top of the rental market.

Rents, Smith expected, would continue to rise, perhaps in pace with inflation, which would likely increase the ranks of those paying more than 30 percent for housing, which he estimated at about 40 percent of renter households while allowing the share may be slightly higher in Laconia.